Big Tobacco jumps in on cannabis action; US giant acquires stakes in Canadian cannabis, American hemp

(FinancialPress) —Public NYSE-traded U.S. tobacco company Alliance One International (AOI) announced through a press release it has executed a major diversification of its business, after acquiring controlling stakes in two Canadian cannabis companies and participation in an American hemp company.

The landmark move marks the first time it’s publically announced that a major tobacco company delves into the blossoming cannabis market.

The American company revealed it acquired an 80% stake in Canada‘s Goldleaf Pharm while also claiming 75% of Island Garden during January 2018.

“CIG is one of only 35 companies fully licensed to produce and sell medicinal cannabis under the Access to Cannabis for Medical Purposes Regulations in Canada (“ACMPR”),“ the press release says, “and has a 20,000 square foot indoor growing facility in Charlottetown, Prince Edward Island. Plans are underway to expand the current facilities by an additional 250,000 square feet of greenhouse capacity at their current site. Currently CIG sells products direct to patients and through distributors. In January, CIG signed a Memorandum of Understanding with the Province of Prince Edward Island to be one of three suppliers chosen to supply the recreational cannabis market that is expected to open in the summer 2018.

“Goldleaf is a late-stage applicant under the ACMPR for required licensing to produce and sell medicinal cannabis in Ontario, Canada and is currently completing construction of a 20,000 square foot indoor growing facility with further expansion planned for an additional 710,000 square feet of production over a three year period.“

Alliance One is an independent tobacco merchant that works with contract growers in North and South America, Africa, Europe and Asia. It operates out of Morrisville, North Carolina and serves as provider for large multinational cigarette manufacturers.

A similar move was pioneered by global alcohol giant Constellation Brands back in October 2017, when it acquired a 9.9% stake in Ontario‘s Canopy Growth for 245 million CAD, or roughly 190 million USD.

Both operations showcase the tobacco and alcohol industries‘ first efforts to participate in the booming marijuana industry. Worthy of note is that most of the action is taking place in Canada, where marijuana is set to be legalized for adult use over the summer of 2018.

“This might be the key piece that (the industry) needs,” said Nic Easley, CEO of Denver-based 3C Consulting. “Constellation was the first (outside player), a major alcohol company.

“Having a major tobacco company come in – let’s bring in some firearms and we have a party.”

As far as the company‘s involvement in the connational hemp grower Criticality, the release noted: “In December 2017, our subsidiary Pure-Ag NC, LLC, acquired a 40% equity position in North Carolina-based Criticality, LLC (“Criticality”), with triggers that allow for consolidation up to 50% on or after March 31, 2020. Criticality utilizes the strength of our farmer network to grow industrial hemp in North Carolina under the state’s pilot program, which is then used for cannabidiol hemp oil (“CBD”) extraction in Criticality’s facility in North Carolina. Our five year goal is to become a leader in CBD production and consumer products.“

J. Pieter Sikkel, Alliance One’s president and CEO, said of the company‘s recent moves that “most of our new business lines focus on products that are value-added or require some degree of processing. These products generally have higher margin potential than our core business and play well to our strengths. In January, we successfully acquired majority stakes in two new joint ventures. The extension into growth segments, namely e-liquids, industrial hemp and cannabis, expands Alliance One’s presence in higher margin, fast-growing categories. We intend to broaden our business portfolio over the next three to four years by focusing on consumer-driven agricultural products, with increased operating margins when compared to our historical leaf processing business. Consistent with our commitment to growth and incremental to our core leaf earnings, our goal is to generate a significantly increasing portion of our profit from new, higher-margin businesses by 2020.“

For the first nine months of Alliance One’s fiscal year, sales increased 8.8% to $1.2 billion mainly driven by the larger South American crop and a 7.5% increase in average sales price due to a favorable product mix. Shares for the company rose 21.32% following the release, by the time of this publication.